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NEW DELHI: India's industrial production contracted in November, reinforcing the view that October's strong showing was largely festival-driven and raising the chances that the central bank may consider a rate cut in its policy review at the end of the month.

Growth in industrial output, as measured by the Index of Industrial Production (IIP), fell 0.1% in November, compared with an 8.3% increase in October, according to data released by the Central Statistics Office on Friday. The dismal data has, however, increased the chances of an interest rate cut by the Reserve Bank of India (RBI) to boost an economy that appears set for a decade-low growth of about 5.5% this fiscal. The possibility of a rate cut also hinge on the inflation numbers, which are due on Monday.

The central bank is scheduled to review monetary policy on January 29.

That the economy continues to struggle was also evident in the trade data for December, which showed exports fell 1.9%, marking eight successive months of contraction, and imports rose 6.3% to keep the trade deficit elevated. "Festival factors were likely to have played havoc with the data in the past couple of months. However, smoothing through volatility, production growth has picked up, albeit from very low levels," said BNP Paribas' Mole Hau in a note.

The festival of Diwali, which is generally celebrated in October, came a month later this year, resulting in increased production in October and reduced output in November because of fewer work days and post-festival slump in demand.

Most experts, however, say the economy is on the mend.

"While monthly data has been volatile, 3mma trends clearly indicate a bottoming with growth at 2.5% v/s near zero readings earlier this fiscal," Ctibank's Rohini Malkani said in a note. The government, too, reiterated its view that economic growth will gather momentum.

"This data does not contradict the proposition that the economy has bottomed out," Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters. ". It now needs to move upwards."

November's contraction was largely because of the 5.5% fall in mining and tepid 2.4% rise in electricity generation, which taken with the drop in some other sectors outweighed the 0.3% expansion in manufacturing, which has the highest weightage (75.5%) in the IIP.

While consumer goods posted a modest 1% increase, capital goods fell 7.7%, suggesting lacklustre investments. Wholesale inflation dropped to a 10-month low of 7.24% in November, but is expected to rise marginally in December. "We expect RBI to gradually shift its focus towards addressing the growth risks, given the moderating inflation trajectory and the serious intent shown by the government in following a fiscal consolidation path," said Upasana Bharadwaj, chief economist at ING Vysya Bank.

Market expectation is that RBI, which indicated in its mid-December review that policy stance should shift towards facilitating growth, will cut rates by 25 basis points, the first reduction since April 2012. The government's decision to announce a hike in train fares and proposal to increase fuel prices in a phased manner could also help monetary easing, as higher prices will moderate demand pressures.